Its been a month since the last update but really major equity prices are barely any different. What has changed are rates at the ten year, the yield curve inversion and the price of precious metals which are at close to 5 yr highs.
Lets skip to the guy’s views.
Summary, the May price bottom for risk assets is in place and the high pessimism pervading the market implies more upside yet to come.
Us Risk – Tactically, from a cyclical aspect, late April saw a top from where we expected a pullback into late May earl June as the set-up for a bounce into best case early July but which should be part of a larger distributive top building process. With last week’s sharp bullish reversal, and the rebreak above 2800, we got a clear trading long signal, which formally confirms our anticipated trading bottom and makes
the June 3rd low at SP500 2729 to a new pivotal support. Although on a very short-term basis the SP500 has worked off her over bought levels and with a new breadth impulse and still too pessimistic sentiment indicators, more upside into late June/early July time window is the probability trade.
The June 3rd low at 2729 is a new medium-term pivotal support. Consequently, as long as the SP500 trades above 2729, the market remains per definition bullish biased into initially later this week and more likely into early July, whereas a break of 2729 (regardless of timing) would trigger a major bear signal into late Q3/early Q4.
With last week’s bullish breadth impulse and looking at the still high pessimism, a previous case scenario to see a marginal new high towards 3000 to best case 3050 is on the agenda. However, with the weekly trend rolling over, larger divergences forming between early cyclicals (semiconductors, banks and transport) versus the SPX and defensives trading in wave 5, the 2019 strategy call that the SPX and global equities should move into a major wave B summer top as the starting point of a new bear cycle (wave C) into initially late Q3/early Q4 holds.
On the sector work, the bounce in cyclicals is underway but this bounce should post a major lower high into June/early July. The surprise last week was the rally in defensives, where utilities and staples marked new reaction highs but which we still see as a wave 5. With yields basing, we would not chase defensives and
concentrate on our tactical bounce call in cyclicals.
European Risk Markets: Following the cyclical model, the suggested bullish reversal in Europe played out, where the break of the late April down trend is the formal confirmation, that the late May trading bottom is in place, which makes 3249 eurostoxx50 a new pivotal medium-term key support.
Short-term, most risk markets are getting were slightly overbought, but however, key is that with the EUREX put/call ratio still at outright contrarian levels, it is likely to see further squeezing into late June/early July, where a re-test to marginal break of
the late April high towards 3550 is still likely.
Sector wise, oversold cyclicals (SXPP, SX4P, SXOP) where SXAP and SX7P are catch-up candidates.
Macro/Inter-Market FX: On track with the short-term cyclical roadmap, the USD is pulling-back, which last week gathered some momentum but which is likely a tactical event within an intact long-term USD bull trend, where into deeper summe a new USD high is the probability. Short-term, the DXY is oversold and reaching support (200- day moving average) where we think most of our suggested tactical pullback into June is behind, so where further USD downside from here should be limited in price and time.
Commodities: Crude oil has posted our suggested (risk correlated) late May trading bottom of $51.00 to a new pivotal support. As long as it holds, we can see further bouncing towards $58 best case 60 into later June before a new down test starting into later Q3. On the metals side, we have seen our suggested USD related bounce in
gold but where the 1350 level is a new key resistance. As long as gold trades below 1350, we see the risk of more corrective work into later June before the ultimate breakout attempt starting. Gold and gold mines are a buy into late June weakness.
Asia/EM Risk: An oversold bounce in Asian markets is underway, where the Nikkei has broken its short-term downtrend, where we have intact long signals in the KOSPI and where China is basing. Short-term, we expect more corrective bouncing into deeper/late June but where we continue to expect Asia/EM to move into a lower trading high versus its April high as the set-up for a major breakdown into later Q3 2019.
Crypto wise the tactical bull trend continues with a renewal of momentum. 10400 in line of sight now.
All eyes to the Fed for the near term tactical moves but recall the tactical levels above. Watch for false breakdowns if rate disappointment as given the pessimism these are very likely excellent trading longs for risk assets as near term tactical trades.
All the best
Rich